Submitted by email to e-ORI@dol.gov 

September 24, 2015 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Attn: Conflict of Interest Rule 

Room N-5655 

U.S. Department of Labor 

200 Constitution Avenue, NW 

Washington, DC 20210 

Re: RIN 1210-AB32

Ladies and Gentlemen: 

The American Federation of Labor-Congress of Industrial Organizations (“AFL-CIO”) is 

pleased to submit these comments to the Department of Labor (“DoL” or “Department”) on the 

Notice of Proposed Rulemaking regarding the definition of the term “fiduciary” of an employee 

benefit plan under the Employee Retirement Income Security Act of 1974, as amended 

(“ERISA”) and of a plan under Section 4975 of the Internal Revenue Code of 1986 (the “Code”) 

as a result of giving investment advice (“Proposed Rule”)1; the Notice of Proposed Class 

Exemption regarding the Best Interest Contract Exemption (“BICE”)2; and the Notice of 

Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction Exemption 

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1 The Notice was published in the Federal Register on April 20, 2015 (80 Fed. Reg. 21928) 

2 The Notice was published in the Federal Register on April 20, 2015 (80 Fed. Reg. 21960) and is 

available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08832.pdf.
U.S. Department of Labor

September 24, 2015

Page 2

(PTE) 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension 

Consultants, Insurance Companies and Investment Company Principal Underwriters.3

The broad interest of working people, including union members, in this rulemaking is 

detailed in both of our earlier written comments and in our testimony at the hearing on the 

Proposed Rule and the BICE on August 10, 2015. In this submission, we would like to 

supplement the record on several issues. Most of these relate to the broader question of whether 

the final rule and PTEs should include loopholes that allow financial institutions and the advisers 

they employ to continue harmful practices and business models, either directly or just renamed 

with the same impact on retirement investors. In our view, allowing such loopholes would 

defeat the purpose of the proposed reforms and undermine the retirement security of the people 

our private pension and retirement savings system was designed to serve.

Investment Recommendations Related to Certain Health Savings Accounts and Welfare Plan 

Assets

At the hearing, Mr. Canary posed two questions to me about the scope of the Proposed 

Rule and its application to recommendations regarding: (1) the investment of assets in Health 

Savings Accounts (“HSAs”)4;and (2) the investment of assets in funded welfare plans.5 

It is our view that investment recommendations regarding HSA assets should be treated 

as fiduciary advice under the proposed rule. Significantly, because of their tax advantages6, HSA 

accounts increasingly are being marketed as a vehicle for accumulating retirement savings, in 

addition to savings in retirement plans, such as 401(k)s and IRAs.7 Just this month the New York 

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3 The Notice was published in the Federal Register on April 20, 2015 (80 Fed. Reg. 22010) and is 

available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08837.pdf.

4 A health savings account is a trust or custodial account established exclusively to pay qualified 

medical expenses of an account beneficiary covered by a high-deductible health plan. See 26 USC § 223. 

5 A welfare plan (or employee welfare benefit plan) is a plan established or maintained by an 

employer or by an employee organization (such as a union), or both, that provides health care or other 

specified types of benefits, including sickness, vacation, and apprenticeship benefits, among others, for 

participants or their dependents directly or through insurance, reimbursement, or otherwise. See 29 USC § 

1002(1).

6 HSAs are not subject to federal income tax and any growth is tax free, as is any distribution used 

toward qualified medical expenses which include premiums for long-term care insurance. 

7 See, for example, Jody Dietel, “Using an HSA for Retirement Savings,” benefitspro (Sept. 19, 

2013), available at http://www.benefitspro.com/2013/09/19/using-an-hsa-for-retirement-savings; 

Elizabeth O’Brien, “Health Savings accounts Gain Acceptance as Retirement Tool,” Market Watch (May 

28, 2015), available at
U.S. Department of Labor

September 24, 2015

Page 3

Times reported on a financial planner who advises clients to pay for current medical costs using 

other funds and let their HSA contributions grow for future use. In the adviser’s words, “You’ll 

be happy to have that money, when you’re older.”8 Like retirement savings plans, HSAs may 

hold both employee and employer contributions; employees can rely on investment returns 

accumulating over many years; and differences in fees and returns affect the final benefit. 

Unlike 401(k) plans, however, HSAs are not subject to disclosure requirements about their 

widely varying account and investing fees. Given this, we see no reason why HSA owners 

receiving advice for a fee regarding the investment of their HSA assets should be accorded fewer 

protections or owed a lower duty of care under the law than retirement plan investors receiving 

advice regarding the investment of pension and other retirement plan assets. If the final rule 

were to create a loophole excluding recommendations related to the investment of these accounts 

from the definition of fiduciary advice, financial institutions and advisers undoubtedly would 

exploit it by encouraging more and more retirement investors to substitute these accounts, at 

least in part, for IRAs and other accounts covered by the fiduciary definition. 

In an effort to minimize the significance of HSA investment accounts in the retirement 

income landscape, Jon Breyfogle testified at the August hearing that such accounts comprise just 

6% of all HSAs.9 What Mr. Breyfogle failed to note, however, is that this translates to hundreds 

of thousands of accounts out of the nearly 14 million HSAs that existed at the end of 2014.10 

These HSA investment accounts already hold an estimated $3.2 billion.11 Further, analysts 

expect HSA investments to increase greatly in coming years as more HSAs are opened and more 

investment firms and advisers focus on HSAs as investment vehicles. According to one 

estimate, HSA investments will total $40 billion in 2020.

12 

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

http://www.marketwatch.com/story/health-savings-accounts-gain-acceptance-as-retirement-tool-2015-05-

28; Megan Elliot, “Hidden Retirement Savings Opportunity in Health Savings Accounts,” Retirement 

Cheat Sheet (Mar. 25, 2015), available at 

http://www.cheatsheet.com/personal-finance/hidden-retirement-savings-opportunity-health-savingsaccounts.html/?a=viewall.

8 Carrns, Ann, “Health Savings Accounts Growing, Especially among the Better Paid,” New York 

Times (Sept. 11, 2015), available at http://www.nytimes.com/2015/09/12/your-money/health-savingsaccounts-growing-especially-among-the-better-paid.html?_r=0.

9 See August 10, 2015, testimony of Jon Breyfogle on behalf of America’s Health Insurance Plans 

and the Blue Cross Blue Shield Association. 

10 Devenir Research, “2014 Year-End HSA Market Statistics & Trends: Executive Summary” (Feb. 

11, 2015) at 2, available at http://www.devenir.com/devenirWP/wp-content/uploads/2014-Year-EndDevenir-HSA-Market-Research-Report-Executive-Summary.pdf.

11 Id.

12 Todd Berkley, HSA Consulting Services, LLC, “The Coming HSA Investment Wave,” (June 23, 

2015) at 2, available at https://askmrhsa.com/wp-content/uploads/2015/06/White-Paper-The-ComingHSA-Investment-Wave-Final-6-23-15.pdf.
U.S. Department of Labor

September 24, 2015

Page 4

It is also our view that the Proposed Rule applies to advice regarding the investment of 

welfare plan assets as proposed Section 2510.3-21(f)(2)(i) defines “Plan,” in relevant part, to 

mean “any employee benefit plan described in section 3(3) of the Act.”13 Perhaps the most 

common funded welfare plan is a collectively bargained multiemployer plan.

14 These plans 

typically provide health benefits, but they also deliver other kinds of welfare benefits, such as 

vacation, supplemental disability or unemployment benefits. Contributions to these plans are 

held in trust and may be invested, along with investment earnings, to fund future benefits. While 

the unique liquidity needs of such plans may lead to investment advice and investments that 

differ from those of pensions and other plans with longer-term investment horizons, we do not 

see any need to distinguish between welfare plans and pension plans in the definition of fiduciary 

investment advice or the terms of the proposed prohibited transaction exemptions. 

Best Interest Contract Clauses Mandating Binding Arbitration to Resolve Disputes

The provision in the BICE allowing for mandatory binding arbitration clauses received 

much attention at the hearing, and we reiterate our strong opposition to it here, consistent with 

existing AFL-CIO policy.15 Unions have extensive experience with arbitration, as it is the 

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

13 ERISA Section 3(3), in turn, includes employee welfare benefit plans and employee pension 

benefit plan. 

14 More recently, so-called stand-alone retiree health plans have used trusts qualified as voluntary 

employees’ beneficiary associations established under Code Section 501(c)(9) as the funding mechanism 

for the ongoing provision of retiree health benefits. These plans are typically funded by one or more 

payments from the former employer of the retirees and hold significant assets for investment. The UAW 

Retiree Medical Benefits Trust, for example, is currently estimated to hold $50 to $60 billion. See “The 

UAW's Health Care Trust Is a Wall Street Activist,” Detroit Free Press (Sept. 21, 2015) available at

http://www.freep.com/story/money/business/2015/09/20/uaws-health-care-trust-wall-streetactivist/71898626/. 

15 The “AFL-CIO Executive Council Statement on Investors Must Have Access to the Courts to 

Prevent Corporate Wrongdoing,” adopted in July 2014, provided in part:

The ability of America’s workers to invest with confidence is threatened by the increasing use of 

pre-dispute, forced arbitration clauses in investment-advisor contracts and corporate bylaws. 

These clauses prevent Americans from exercising their constitutional right to bring their claims 

before a jury, and instead force all shareholder disputes into private arbitrations. These private 

arbitrations are controlled by the very same corporations against which the claims are being 

brought. 

 * * *

The AFL-CIO urges the SEC to exercise its congressionally granted authority under Section 921 

of the Dodd-Frank Wall Street Reform and Consumer Protection Act to restrict mandatory pre-
U.S. Department of Labor

September 24, 2015

Page 5

primary, if not sole, means to resolve disputes under collective bargaining agreements. The 

setting in which we operate, however, differs significantly from one concerning an agreement 

among a financial adviser, financial institution and individual retirement investor. In collective 

bargaining, an employer and the union come together on relatively equal footing to negotiate the 

terms of each contract. When disputes arise, the union represents the individual worker. In 

contrast, the retirement investors to whom the BICE applies (i.e., individual plan participants, 

IRA owners, and small plan sponsors) typically are given a take-it-or-leave-it offer of contract 

terms drafted by financial institution lawyers. Unlike collective bargaining between an employer 

and workers’ union representatives, there is no negotiation to set the contract terms, and when a 

dispute arises, the individual investor must retain an outside lawyer who was not party to the 

contract negotiation. 

We ask that the Department give serious consideration to the hearing testimony of James 

Keeney, who not only has represented individual investors in securities arbitration, but also is, 

himself, a FINRA arbitrator. Based on his vast experience, Mr. Keeney details the many ways in 

which permitting mandatory arbitration clauses in BICE contracts defeats the very purpose of the 

exemption. David Certner, who testified at the August hearing on behalf of AARP, had it 

exactly right when he characterized the DoL’s proposal to permit BICE contracts to include 

mandatory binding arbitration clauses as a “huge concession” to the financial services industry—

one for which we see no persuasive justification.

Application of the Definition of Advice to Distribution Recommendations

One of the most troubling aspects of the Department’s current narrow definition of 

investment advice is that it leaves individual retirement investors unprotected in almost all cases 

in which they receive recommendations related to retirement plan distributions. For many 

working people, deciding whether and how to take a distribution and what to do with it are oncein-a-lifetime choices that can have significant, even life-altering, consequences. Given the 

importance of distribution decisions, we ask the Department to clarify in the final rule the 

circumstances in which distribution recommendations are to be treated as fiduciary advice. In 

our view, the final rule should treat such recommendations as fiduciary advice to the maximum 

extent permitted under the law. Further, the final rule should anticipate and prevent efforts by 

financial advisers and financial institutions making distribution recommendations to evade 

fiduciary status and responsibility in ways that undermine the statutory text and purpose.

It is unclear under the Proposed Rule whether an adviser will be considered to be 

rendering investment advice when she recommends that a client take a distribution from a 

governmental or other non-ERISA benefit plan, and invest that distribution through an IRA. The 

final rule should clarify that the scope of fiduciary advice regarding the management of IRA 

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

dispute arbitration provisions in agreements between investors and brokers, dealers and 

investment advisers.
U.S. Department of Labor

September 24, 2015

Page 6

assets will include such a recommendation if the distribution will be the source of some or all of 

the IRA assets for which the adviser makes investment recommendations. 

We are aware that some financial adviser and financial institution representatives are 

exploring how they might structure such recommendations in ways that evade fiduciary status 

for a distribution recommendation. For example, some are suggesting this could be 

accomplished by artificially separating the advice into two separate recommendations, one 

covering the distribution and one covering the investment of the IRA rollover assets. The final 

guidance issued by the Department must make it clear that these kinds of subterfuges will not 

work. 

Limiting Availability of the Seller’s Carve-Out

Financial service representatives used the hearing as an opportunity to argue that the 

seller’s carve-out for advice provided to large pension plans should be extended to smaller plans, 

plan participants and beneficiaries, and IRA owners. Many took issue with the rationale for the 

carve-out—that fiduciaries of large plans are better able than their small plan and individual 

counterparts to distinguish between conflicted sales recommendations and conflict-free advice—

and suggested that the rule as drafted unfairly limits small investors’ right to choose services and 

products that fit their needs. We strongly disagree. 

Limiting the seller’s carve-out to certain large- and medium-size plan fiduciaries with 

sufficient expertise to evaluate a transaction and conflicted investment recommendations is 

entirely appropriate and necessary to protect the rights and interests of individual retirement 

investors and plan participants and beneficiaries. It is clear that large plan fiduciaries have many 

more resources than small plan fiduciaries, as well as ready access to unconflicted financial 

experts. As noted by the ERISA Industry Committee in comments calling on the Department to 

make a similar distinction between large retirement plans and smaller plans when considering 

amending the ERISA Section 408(b)(2) disclosure regulations, “Fiduciaries of plans sponsored 

by America’s largest employers generally have a team of sophisticated professionals and access 

to independent expert advice to help them analyze plan fees. Smaller plan sponsors typically 

have limited resources to expend analyzing plan fees and less information readily at their 

disposal.”16 Further, far from curtailing investor choice, the proposal reflects a great 

accommodation to a broad range of business practices through the BICE.17 We urge the 

Department to hold firm on the carve-out as currently written, rather than bow to industry 

requests to expand it, thereby creating a loophole that swallows the underlying rule.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 16 Comments of Kathryn Ricard, Senior Vice President, Retirement Policy, ERISA Industry 

Committee, to the Department of Labor on the “Proposed Information Collection Request Submitted for 

Public Comment; Evaluating the Effectiveness of the 408(b)(2) Disclosure Requirements,” May 12, 2014, 

available at http://www.dol.gov/ebsa/pdf/1210-AB53a-007.pdf

17 We oppose broadening the BICE exemption in the final rule to cover small, participant-directed 

plans.

!!
U.S. Department of Labor

September 24, 2015

Page 7

Advice Regarding Certain Annuity Contracts

We support the Department’s proposed revisions to PTE 84-24. The purchase by an IRA 

of a variable annuity contract or other annuity contract that is a security under federal securities 

laws or of mutual fund shares should be treated in a manner that is consistent with how similar 

investments in securities are dealt with under the proposed package of reforms as a whole. It is 

important, therefore, to exclude the purchase of these investments from the transactions covered 

by PTE 84-24. Instead, financial professionals with a conflict of interest should have to rely on 

the BICE in order to engage in these transactions. We are not persuaded by the broad-brush 

argument of insurance industry representatives that the proposed changes will inhibit the sale of 

annuity contracts to the detriment of individual retirement investors. While we agree that 

guaranteed lifetime income is a critical component of retirement income security, the principlesbased approach at the heart of the proposed BICE not only provides sufficient flexibility to 

accommodate advice about such products, but also protects the interests of retirement investors. 

Thank you for your consideration of our views, and please do not hesitate to contact me 

with any questions you have about them. We commend you for moving forward with this 

important rulemaking.

Very truly yours,

/s/ Shaun C. O’Brien

Shaun C. O’Brien

Assistant Policy Director for Health and Retirement